Abstract
As an emerging country, the progress of Bangladesh is highly promising. Foreign aid may be one of the key players fueling such advancement. The note is an attempt to examine the effect of foreign aid on the economic growth of Bangladesh. With a view to fulfill our objective, the study employs annual time series data during the period of 1971 to 2019. It has used some econometric tools i.e., Unit Root Tests and OLS Methods to process the collected data. The dependent variable is Gross Domestic Product (GDP) while other independent variables i.e., Foreign Aid (ODA), Gross Capital Formation (GCF), Population (POP), and Education (EDU). The test results confirmed that GDP growth is positively related to foreign aid, gross capital formation, and education, but negatively related to population. In Bangladesh, if foreign aid increases by 1% then the GDP growth, gross capital formation, and education rate will accelerate to 0.1988%, 0.6015%, and 0.0652% respectively. So it is evident that foreign aid plays a propitious role to progress the economic growth of Bangladesh. It is a crying need to swell up effectiveness, transparency, proper accountability in allocation, and stronger management of aid inflows to speed up economic growth.
Highlights
Having independence in 1971 Bangladesh, a poorest and mostly densely populated country, is facing multiplex challenges with extensive corruption, acute poverty, educational barriers and poor healthcare facilities
The test results confirmed that Gross Domestic Product (GDP) growth is positively related to foreign aid, gross capital formation, and education, but negatively related to population
In Bangladesh, if foreign aid increases by 1% the GDP growth, gross capital formation, and education rate will accelerate to 0.1988%, 0.6015%, and 0.0652% respectively
Summary
Having independence in 1971 Bangladesh, a poorest and mostly densely populated country, is facing multiplex challenges with extensive corruption, acute poverty, educational barriers and poor healthcare facilities. Aid is for uplifting the people around 64 million living here who are lying under the international poverty line at $1.25 per day, dropping poverty rate by 19% both for rural and urban areas for last few decades. Aid from the International Development Association (IDA) $16 billion in 2013 supports to reform the policies as well as various investment projects in which more than $12.5 billion had been used for the purpose of healthcare, promoting education and infrastructural development that triggering the growth. Around $40,488 million aid has been invested to develop infrastructures and services i.e., energy, transportation, communication and financial institutions from 2001-19. Social infrastructure and service (i.e., health and sanitation, education and water supply) got expenditure $25,710 million. In the fiscal year 2001-02 around half (48%) of the Annual Development Program (ADP) budgets was the aid funded that has been decreased to 32% in the fiscal year 2019-20 (Rafi & Khan, 2021)
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